Shell’s Arctic Offshore Drilling Ambitions Stymied In Appeals Court

Royal Dutch Shell drilling rig Kulluk aground off a small island near Kodiak Island.

CREDIT: U.S. Coast Guard

Shell’s ambitions to drill for oil off the coast of Alaska received another blow Wednesday, when the 9th Circuit Court of Appeals ruled that the Interior Department had failed to adequately assess the scale of oil production that could result from the 2008 sale of leases in the Chukchi Sea.

The court challenge — brought by a group of some of the nation’s most prominent environmental organizations — was based in part on an estimate by the Bureau of Ocean Energy Management (BOEM) that 1 billion barrels of oil was “economically recoverable” from the Chukchi Sea leases. The environmental review of the lease sale was based on that number.

“In the case before us, BOEM was fully aware from the very beginning that if one billion barrels could be economically produced, many more barrels could also be economically produced,” the opinion said. The appeals court called the estimate “arbitrary and capricious,” and said that under the National Environmental Policy Act, the government must “base its analysis on the full range of likely production if oil production were to occur. It did not do so here.” The case was sent back to U.S. District Judge Ralph Beistline in Alaska for additional review.

Shell, the biggest leaseholder in the Chukchi Sea, has yet to decide whether or not to resume exploratory drilling this year after a series of mishaps in 2012 led the company to suspend work in the Arctic in 2013. The grounding of a drilling rig, violations of air pollution limits, engine failures on a tow ship, and dangerous ice were just some of the problems that plagued Shell’s first attempt to drill an exploratory well.

On Friday, Shell warned investors that fourth-quarter profits were down significantly in part because of expensive exploration projects.

“Today’s ruling is a victory for the Arctic Ocean,” the plaintiffs said in a joint statement. “The government has no business offering oil companies leases in the Chukchi Sea. The area is home to iconic species such as polar bear, bowhead whales, and walrus and to a vibrant indigenous subsistence culture. Drilling for oil puts at risk the region’s wildlife and people, and it takes us off the path toward a clean energy future.”

Back in 2008, the Bush administration put up for lease nearly 30 million acres in the Chukchi Sea for oil drilling. The lease sale was immediately challenged in court by environmental and native groups. In 2010, a judge ruled that the lease sale violated environmental law because it neglected to address incomplete information about species in the Chukchi. The federal government was then required to reconsider its leases. A year later, the Obama administration decided to let the leases stand and the court appeal was filed.